Crazy Trader Mode

Price Action Trading Report – Crazy Trader Mode ENGAGED – 15-May-16

Hello PAST Traders!

I’m going to try to describe a feeling that I encounter every now and again when I’m trading.

Now, I’m not a great writer, not by any stretch of the imagination. So I’m not sure that I have the vocabulary or the writing skill to do this justice, but I’m going to give it my best shot.

Hopefully you’ll understand what I’m talking about, and you might even find that you encounter the same thing yourself at certain times during your own trading.

So, let’s get started.

Hmmmm…so what’s the best way I can describe this to you?

Well, it’s sort of like a significant moment.

It’s a moment when something changes in your approach to the market.

Your behaviour undergoes a dramatic transformation.

It’s like a switch has been flipped

I remember playing a particular computer game when I was much younger. It was a car racing game, but I can’t for the life of me remember the name of it. Anyway, it was a simple racing game, where you raced a car around different tracks and tried to win the race.

You spent 99% of the time playing the game in “Normal Mode”. Despite the name, in Normal Mode the cars were still quick and the game was exciting.

But there was also another mode. It was called “Crazy Mode”. When you engaged Crazy Mode, everything changed. Instead of driving at normal speed, you could do 3 times the pace, if not more. Everything sped up. You could take corners at tremendous speeds and you raced right on the edge. Your knuckles went white and you held onto that controller for dear life.

In Normal Mode, when you combined some driving skill with the normal levels of speed and power, it was enough to do well. You might not win every race, but you would always be competitive.

In Crazy Mode though, everything was a coin-flip. With all that extra speed, you could, in theory, tear around the course at breakneck speed, demolishing everything in your path, and win by a massive margin.

But that’s not what usually happened. Despite all that extra speed and power, winning in Crazy Mode was actually quite rare.

What was far more likely was that you couldn’t manage the speed, you’d lose control, crash, and come last.

DNF – Did Not Finish

In Normal Mode you could be pretty certain to do well, and you’d even be in with a shout of winning.

In Crazy Mode, it was all or nothing.

In Crazy Mode, you either won or you were dead.

There’s something similar in trading

Like that racing game, I think traders also have modes.

And sometimes, something can happen in the market that prompts a change in your trading mode.

In “Normal Trader Mode” you’re a calm, reasonable, methodical, disciplined trader. You take trading decisions dispassionately. You take trading losses pragmatically. You’ll always keep one eye focused on the bigger picture.

In “Crazy Trader Mode” however, it’s a totally different story.

In Crazy Trader Mode you’re a deranged, destructive, angry trader. You speed your trading up to as fast as it will go. You take losses personally. You seek to exact revenge on the market.

Crazy Trader Mode is a toxic approach to trading.

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I nearly flipped the switch this week

For practically all of this year, I’ve very much been in Normal Trader Mode. My trading has been going well, and for the most part I’ve felt like the market has been working with me this year, rather than against me.

But this week, EUR/GBP frustrated me to the point where the switch was very nearly flipped.

Crazy Trader Mode was almost engaged.

Now, I should be very clear. I’m very glad to say I stepped back from the brink, and in the end Crazy Trader Mode wasn’t engaged. But I felt that exact moment when I knew my control was just beginning to slip.

And I have to be honest with you – it rattled me.

Last week I told you about my trading on EUR/GBP. I described how I had failed to get a short position established in the market, and had taken a few losses while trying to do so. But I told you that despite this, I thought I’d been trading well.

I know I’m always telling you that you shouldn’t judge your trading performance based on profit and loss alone. I’m always telling you that you can trade well over a period of time and still return a loss. And equally, you can trade recklessly over a period of time and still manage to return a profit.

And up until this week – I was very comfortable taking my own advice.

But last Wednesday, the market had me on the ropes. I had my “moment”. Let’s rewind for a moment and look at my trades leading up to my wobble.

Spectacular Trendline Break

First of all we had this fantastic trendline break. This is just beautiful. When I see the market move like this, I’m reminded why I love trendlines so much. Price breaks, pops, and steams off into profit. Fantastic.

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This trade got up to 200+ pips in floating profit, and I had my stop at breakeven. Everything was looking rosy and I was confident that we were heading much lower. Another great trade to add to my very successful long Yen trades I’ve taken so far this year.

Or so I thought.

Agonising Retrace

Then the retrace happened.

Now, I never pretend that retraces don’t happen, that they aren’t a pain, or that there is some magic way of avoiding them.

Retraces do happen, they are a pain, and there is no magic way of avoiding them.

They are part and parcel of trading.

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I’m normally quite pragmatic about retraces. I don’t like them, but I understand that they happen, and when a breakeven stop gets taken out I usually comfort myself with the wise words of Warren Buffet.

Rule Number 1: Never Lose Money
Rule Number 2: Never Forget Rule Number 1

But this retrace was different. It was particularly cruel. If you want an example of how the market can inflict real pain on a trader, here it is.

The market creeped towards my breakeven stop-loss, just cheekily poked past it by a few pips. Price gleefully triggered my stop, closed my trade, and then just fell away again.

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It’s horrible when that happens. But in this example of market sadism, that’s not the end of the story. The real kick in the gut was yet to come. After triggering my stop loss, the market just turned around and marched back off where it came from. Without me. I was left counting the pips that should have been mine.

This Past Week

So that was the situation I was confronted with when I came into the market this week. I was putting on a brave face, but that triggered stop-loss had annoyed me. I wasn’t aware of it at the time, but on reflection, there was probably a little piece of me looking for revenge.

I came into the week looking to short EURGBP right from the off.

But whatever plans I had for EURGBP, the market did not share them.

I was looking for the market to move down, but the market decided that it wanted to go –

Precisely nowhere!

Being early in trading is the same as being wrong. And I was early last week (or wrong, we’ll find out for sure this week).

I took a few trades, but they were all losers. Small losers to be fair, but still losers. And when you are feeling a bit vulnerable, when you feel like you are going through a tricky trading period, you don’t rationalise those losses by saying that they are small. That they’re no big deal.

When you are feeling vulnerable, losses sting, no matter how small they are.

So I had a series of false breaks, retraces, and price was generally messing around and going nowhere.

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And with each false break, my frustration levels rose.

This was the setup that brought my frustration to a climax.

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Cue apoplectic Nigel.

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Crazy Trade Mode was this close to being engaged.

Now, please imagine this with me for a second. Remember the “moment” I was talking about back at the start?

This is it. This the moment that I’m trying to describe to you.

This precise moment, the moment of the switch.

That exact second when you are just about to move from Normal Trader Mode to Crazy Trader Mode.

Before this moment, things are under control.

But after this moment, if Crazy Trader Mode does get engaged, that control can quickly evaporate.

Before this moment, losses are still small and contained.

After this moment, well, who knows what the losses could end up being.

This is the moment when the devil on your left shoulder is shouting louder that the angel on the right.

This is when the switch is about to be flipped

I know all too well what happens when the switch is actually flicked. I’ve been there before, many times.

This is what happens:

  • It suddenly becomes a good idea to move down to the lower timeframes
  • It suddenly becomes a good idea to take loads of trades in quick succession
  • It suddenly becomes a good idea to increase your position size
  • It suddenly becomes a good idea to lengthen out your stop-loss

Basically, it becomes a good idea to act in a way that is almost guaranteed to inflict huge damage on your trading account.

Like the racing game, it suddenly becomes win or die.

Have you been there, do you know what I’m talking about?

On this occasion, as I said, I didn’t engage Crazy Trader Mode. I stepped back from the brink and stopped trading EURGBP. After that last trade on Wednesday, I didn’t take any more trades on EURGBP for the rest of the week. I moved on. I told myself I’d reassess it when I’m a bit calmer.

So I escaped pretty much unscathed. But there was a time when I definitely would not have taken evasive action. There was a time, when confronted with the exact same set of circumstances, I would’ve engaged Crazy Trader Mode with relish.

I would have got the 1 minute chart running, would have doubled up the position size if not more, and I would have went for it. And I would’ve lost 30% of my account. No trouble to me at all.

So what’s different between me then and me now?

Well this is roundabout the time where I should now reveal to you the 10 best steps to avoiding this or whatever, isn’t it? Like all those other forex sites you read. The ones where they tell you that everything in trading is simple. Everything has a clear answer. All you have to do is xyz.

The trading gurus who make you feel stupid when something like this happens, because, hell, it would never happen to them, right? They never come close to losing control, right?

Well I suppose I must be a bit different.
Because I’ve no problem admitting to you that I had a close call this week, and that the market rattled me. For a second, it had me on the ropes.

What could I do differently next time? What caused this wobble and can I avoid it happening again?

I’m not really sure I can.

It’s not as if I was carrying a huge loss or anything, that was making me emotional. My total losses on EUR/GBP over the last few weeks are only something like 62 pips.

So it wasn’t that.

The losing streak was not especially long by my usual standards.

So it wasn’t that.

It wasn’t position size, because I was well within my normal range there too.

So it wasn’t that either.

(In fact, because I trade with such small position sizes now anyway, even if I did engage Crazy Trader Mode and double my position size, it still probably wouldn’t have made a huge difference, but I suppose that’s not the point)

It wasn’t that I was distracted.

So I just don’t know.

I guess the point is that there are no fixed set of circumstances during which I might take a wobble. Of course, it makes sense to be a bit more vulnerable after a few losses, that’s for sure. But I didn’t take the bigger picture in account on this occasion. (the bigger picture being that things weren’t bad, the losses weren’t big, the losing streak wasn’t long, etc.) So there’s no guarantee I’ll do so next time either.

All I can do is leave you with the same advice I’m going to try to give myself.

All you can do is try your best to be aware.

Be aware and watch out for the moment that I’ve tried to describe. The moment just before the switch is flipped. Before Crazy Trader Mode is engaged. Before you start careering around the market like an out of control race car, losing massive chunks of your account equity in the process.

If you’re aware, you can notice it when it’s happening and take the steps to stop it. Close the chart, go for a walk, just refuse point-blank to get sucked in. Wait until the moment has passed, and you’re back into Normal Trading Mode – where things are steady and calm.

Normal Trader Mode is where the profits are and that’s where we should be too.

Good luck!

Nigel

PS: In Friday’s Pro Workshop we discussed this issue at some length and examined how we can use statistics to assist us in gaining perspective on our losses. It was a really useful Workshop, so I’d advise any Pro Members who were unable to attend to watch the replay here.

If you aren’t yet a Pro Member, now is a great time to join us, because the Pro Workshops and Pro Forum are free for life for anyone who becomes a Pro Member before the end of May 2016. If you join Pro Membership after the end of May, you’ll have to pay for access after the first 6 months. You can join by clicking HERE.

DISCLAIMER & COPYRIGHT

This update is based on my analysis on my charting package. It may differ to yours as it can be affected by time, market movements, charting packages and broker prices. I accept no liability for loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on any information in this report or analysis.